December 26, 2014

During the week we sold Marathon and then thought better of that
move repurchasing half the position. We also added to American Eagle and bought
Sprint and U.S. Steel for many accounts.

The markets remain strong and after a surge in the New Year
from new money we expect a pull back. The economy remains strong with GDP growing 5% in the third quarter and
so any pullback should be temporary. Earnings are not growing as fast as
multiples are expanding and there is certainly froth in the market. How long is
the question and to that we have no answer.

Our guess is strength through March and then big question
mark.

Happy New Year

*****

December 19, 2014

The downturn on Monday climaxed on Tuesday with a volatile
day followed by a rally on Wednesday and Thursday and a consolidation day
Friday. Our guess is that the oil price drop and the Russian imbroglio mark the
end of the December correction. As we have been saying the economy is fine and
the drop in oil prices has created a ‘tax cut like’ windfall for most
consumers. It will be felt in their credit card bills since that is the way
most folks pay for gas.

We took advantage of the drop to add to issues that we own
and increase overall equity exposure in accounts. Smaller accounts are almost
fully invested and larger accounts are up to 80% invested, a good amount of
that money is in income producing stocks with AT&T and Verizon comprising
big chunks of most large portfolios. We have been lucky trading both those stocks
this year and hope to continue that luck. Sprint began a price war with them
early this month and that action caused all three to move lower. Sprint has
been hardest hit and is a loser in portfolios but we remain confident in
eventual gains.

We did switch out of BP at a loss an added to our
Marathon and GM positions with the money.
BP’s Russian participation in Rosneft worries us and since Marathon is a less controversial oil play we
decided to stick with it to participate in the eventual recovery in oil
prices.

Tax loss selling through year end may keep some of our
depressed issues down but in the New Year we would expect a least a little
bounce at which time we will reevaluate.

Happy Holidays

*****

December 12, 2014

The correction is upon us. We did suggest it would occur but
we don’t know how long it will last. Given that folks have gains from earlier
in the year, tax loss selling and the desire of institutional investors not to
own oil names at year end may cause the selling to last into the New Year.

We didn’t know the reason why the selloff would occur but
the pattern in normal years over the last decade is for selloffs to occur in
October and December.

We have been buying into the sell off since we expected it.
We have added yield stocks like AT&T (5%) Verizon (5%), BP Amoco (6%), Marathon (3.5%), DeutschBank (3.3%) American
Eagle (4%) and Ford (4%).

This too shall pass. The economic numbers suggest the economy
is in good shape. Lower oil prices help the consumer while hurting some of the
high flying drilling and steel stocks. The loss of jobs in the oil industry –
if they occur- will be offset by the dollars in consumer prices to pay down
debt or to spend as most folks do.

Abercrombie’s long time CEO finally left and so the near
term outlook for the company is uncertain. ANF should hire Jenna Lyons, the force
behind J Crew’s recent success. They should give her the store in order to
bring her on board. If they did the share price would rally 20% immediately

To have some fun we thought we would present recent news
articles suggesting a $200 price on oil.

7/23
2014: If the standoff with Russia and the West reaches a point where the EU has
to completely cut trade with Russia, oil prices could soar above $200 per
barrel, sparking a global economic crisis, says Adam Slater, senior economist
at Oxford Economics.*****

6/13/2014:
If Iraq's oil supply goes offline, crude prices could hit $150-$200 a barrel,
T. Boone Pickens, founder of BP Capital Management, told CNBC
on ..."That's where you have to kill demand with price. That's the
only way you can do it, because oil won't be there," Pickens said in an
interview with "Street Signs."
*****

Last
week, President Obama lauded the fact that America
was poised to become the number one energy producer in the world this year.

“For
the first time in a very long time, we’re producing more oil than we’re
importing. So we’ve got a lot of good things going for us,” he said.

But
the US does not function in isolation. It is a global energy
market and most analysts believe the international oil market is balanced on a
knife edge, with precious little spare capacity.

On
Friday, the Washington Post
quoted Robert McNally, founder of the Rapidan Group, a consulting firm who
spelt out what for many people is blindingly obvious. “Since oil is globally
traded and fungible, reducing imports cannot ensure low and stable prices.”

The
paper pointed out that globally spare production capacity is currently 2 to 3
per cent of global consumption, below the 4 per cent level, which is seen as a
minimum level for a cushion. At this level, any political unrest could hit
prices.

And
the futures oil price has already begun to creep up on the news that the Organisation
of the Petroleum Exporting Countries (OPEC)
reported a slight drop in its September output which averaged about
30 million barrels per day.

And
whilst there is also surging production from North America, we could be heading for an oil supply crunch due to growing demand
from China.

Sep 29, 2014 - In past episodes
of military conflict in the Mideast, oil prices have surged amid fears of
... Economist Jeff Rubin: US Oil Might Drop to $40 a Barrel .... Global
economies are moving at different speeds, creating a divergence in ...

December 5, 2014

We traded out of our two oil stock
trades when the rally off the large drop last week faded. We made a scratch
profit in both. We reentered AT&T and Verizon with the proceeds. We also
took our small profit in KB homes and eliminated Hecla flat.

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